GDP to increase 8.6 pct in 2014: Deutsche Bank

Driven by a private investment boom, trimmed manufactu-ring overcapacity and improved exports, China's economy will grow 8.6 percent in 2014, extending the strong momentum seen in the second half of 2013, Deutsche Bank predicted on Monday.

Other financial institutions including Moody's Investors Service, Minsheng Securities, Bank of Communications and Bank of America Merrill Lynch recently forecast China's GDP growth at 7.5 to 7.6 percent.

Deutsche Bank's higher projection is based on reviving external demand for China's products, especially in the US, where growth is expected to hit 3 to 3.5 percent in 2014, 1 percentage point higher than last year, Ma Jun, chief China economist of Deutsche Bank, said at a press conference.

China's exports hit 13.7 trillion yuan ($2.21 trillion) in 2013, up 7.9 percent year-on-year, according to data released by the General Administration of Customs on Friday.

The pickup in external demand will contribute an additional 4 percentage points to China's export growth this year compared with 2013, Ma said.

Manufacturing overcapa-city has long been regarded as a drag on the economy.

The production of solar -panels was slashed 30 percent in 2013 and is expected to decline 20-30 percent further within a year. The cement industry will reduce new supply by 35 percent in 2014, he said.

All sectors with overcapa-city issues account for 5 percent of China's GDP by assets.

Other sectors that suffer from inadequate supply include healthcare, environmental protection, metro and railways. They account for 10 percent of national GDP, the Deutsche Bank calculates.

Those sectors bring opportunities for growth and China's new market access policies will unleash the potential of private capital and boost the economy, Ma said.

"As private investors get access to investment to railway infrastructure, they tend to buy new equipment, machinery and hire people, which will lead to a faster turnover of capital and accelerate the GDP growth even if the overall money supply remains unchanged," he said.

Social capital and private investment accounted for a mere 2 percent of railway infrastructure projects in 2012, but that is expected to hit 15 percent by 2015, Deutsche Bank said.

Downside risks include the negative capital outflow impact of US pulling back from its quantitative easing program, new and tougher government rules to curb property price rises and uncertain shadow -banking activities, Ma said.

According to many financial institutions, China is more likely to achieve a GDP growth target of 7 percent this year as it tries to restructure the economy.

China has set an average GDP growth target of 7 percent for the 2011-15 period, and the average GDP for 2011-13 was more than 8.2 percent.

Policymakers will most likely lower the growth target to 7 percent for the last two years, Liu Ligang, chief China economist at ANZ Banking Corporation, told the Global Times on Monday.

Liu therefore forecast GDP growth at 7.2 percent in 2014.

Export growth is unlikely to exceed 10 percent this year, he said, given the further appreciation of the yuan against the US dollar, structural overcapacity that cannot be solved overnight.